<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended October 31, 1998 Commission File Number 0-8675
OIL-DRI CORPORATION OF AMERICA
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2048898
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
410 North Michigan Avenue
Chicago, Illinois 60611
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,456,098 Shares (Including 1,042,260 Treasury Shares)
Class B Stock - 1,779,420 Shares (Including 342,241 Treasury Shares)
<PAGE> 2
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------
OCTOBER 31 JULY 31
ASSETS 1998 1998
----------------------------------
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 6,878 $ 9,410
Investment Securities 1,193 1,173
Accounts Receivable 26,728 24,561
Allowance for Doubtful Accounts (396) (351)
Inventories 13,062 13,258
Prepaid Expenses and Taxes 6,042 5,558
-------- --------
TOTAL CURRENT ASSETS 53,507 53,609
-------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST
- ---------------------------------------
Cost 127,592 126,378
Less Accumulated Depreciation and
Amortization (65,472) (63,493)
-------- --------
TOTAL PROPERTY, PLANT
AND EQUIPMENT, NET 62,120 62,885
-------- --------
OTHER ASSETS
- ------------
Goodwill & Intangibles (Net of
Accumulated Amortization) 9,616 8,963
Deferred Income Taxes 3,740 3,697
Other 4,309 5,061
-------- --------
TOTAL OTHER ASSETS 17,665 17,721
-------- --------
TOTAL ASSETS $133,292 $134,215
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 3
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
OCTOBER 31 JULY 31
LIABILITIES & STOCKHOLDERS' EQUITY 1998 1998
---------------------------------
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Current Maturities of Notes Payable $ 2,083 $ 2,084
Accounts Payable 3,961 4,416
Income Taxes Payable 420 --
Dividends Payable 439 444
Accrued Expenses 8,207 10,024
Special Charge Reserve 358 358
--------- ---------
TOTAL CURRENT LIABILITIES 15,468 17,326
--------- ---------
NONCURRENT LIABILITIES
- ----------------------
Notes Payable 39,976 39,976
Deferred Compensation 3,133 3,174
Other 2,094 1,931
--------- ---------
TOTAL NONCURRENT LIABILITIES 45,203 45,081
--------- ---------
TOTAL LIABILITIES 60,671 62,407
--------- ---------
STOCKHOLDERS' EQUITY
- --------------------
Common and Class B Stock 724 724
Paid-In Capital in Excess of Par Value 7,702 7,702
Restricted Unearned Stock Compensation (40) (51)
Retained Earnings 86,747 85,158
Cumulative Translation Adjustment (1,180) (1,151)
--------- ---------
93,953 92,382
Less Treasury Stock, At Cost (21,332) (20,574)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 72,621 71,808
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 133,292 $ 134,215
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------
FOR THE THREE MONTHS ENDED
OCTOBER 31
------------------------------
1998 1997
------------------------------
<S> <C> <C>
NET SALES $ 43,670 $ 39,749
Cost Of Sales 29,585 27,851
---------- ----------
GROSS PROFIT 14,085 11,898
Selling, General And Administrative Expenses 10,576 8,825
---------- ----------
INCOME FROM OPERATIONS 3,509 3,073
OTHER INCOME (EXPENSE)
Interest Expense (792) (439)
Interest Income 144 112
Other, Net (25) (146)
----------- ----------
TOTAL OTHER EXPENSE, NET (673) (473)
----------- ----------
INCOME BEFORE INCOME TAXES 2,836 2,600
Income Taxes 808 728
---------- ----------
NET INCOME 2,028 1,872
RETAINED EARNINGS
Balance at Beginning of Year 85,158 82,243
Less Cash Dividends Declared 439 455
---------- ----------
RETAINED EARNINGS - OCTOBER 31 $ 86,747 $ 83,660
========== ==========
AVERAGE SHARES OUTSTANDING 5,929 6,327
========== ==========
NET INCOME PER SHARE $ 0.34 $ 0.30
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------
FOR THE THREE MONTHS ENDED
OCTOBER 31
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
- ------------------------------------ ----------------------------
<S> <C> <C>
NET INCOME $ 2,028 $ 1,872
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,140 1,920
Provision for bad debts 44 (20)
(Increase) Decrease in:
Accounts Receivable (2,166) (2,992)
Inventories 196 (387)
Prepaid Expenses and Taxes (484) (24)
Deferred Income Taxes (43) --
Other Assets (14) 21
Increase (Decrease) in:
Accounts Payable (454) 388
Income Taxes Payable 420 --
Accrued Expenses (1,817) (2,061)
Deferred Compensation (41) (27)
Other 163 89
--------- ---------
TOTAL ADJUSTMENTS (2,056) (3,093)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (28) (1,221)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital Expenditures (1,269) (1,218)
Proceeds from sale of property, plant and
equipment -- 4
Purchases of Investment Securities (548) (190)
Dispositions of Investment Securities 528 181
Other -- (18)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,289) (1,241)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal Payments on Long-Term Debt (2) (3)
Dividends Paid (444) (466)
Purchases of Treasury Stock (758) (2,970)
Other (11) 4
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1,215) (3,435)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,532) (5,897)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,410 9,997
--------- ---------
CASH AND CASH EQUIVALENTS, OCTOBER 31 $ 6,878 $ 4,100
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF STATEMENT PRESENTATION
The financial statements and the related notes are condensed and should be read
in conjunction with the consolidated financial statements and related notes for
the year ended July 31, 1998, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
The unaudited financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statements
contained herein.
2. INVENTORIES
The composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
-----------------------------
OCTOBER 31 JULY 31
(UNAUDITED) (UNAUDITED)
-----------------------------
1998 1998
-----------------------------
<S> <C> <C>
Finished goods $ 7,809 $ 7,935
Packaging 4,029 4,220
Other 1,224 1,103
-------- --------
$ 13,062 $ 13,258
======== ========
</TABLE>
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
<PAGE> 7
3. SPECIAL CHARGE
The Company recorded a pre-tax special charge of $3,129,000 during the second
quarter of last year to cover the cost of exiting the transportation business
($1,508,000), to write off certain other non-performing assets ($932,000), and
to cover other exit costs ($689,000). The transportation business exit costs
consisted primarily of trailer rehabilitation, employee severance, and
professional fees. None of these items was individually significant. At October
31, 1998, $359,000 of the special charges remained in current liabilities.
A summary of the balance sheet activity for both years is presented below (in
thousands):
<TABLE>
<S> <C>
Reserve Balance at January 31, 1998 $ 3,129
Fiscal year 1998 activity:
Transportation business exit costs 1,440
Write-off of non-performing assets 808
Other exit costs 523
--------
Balance at July 31 and October 31, 1998 $ 358
========
</TABLE>
4. NEW ACCOUNTING PRONOUNCEMENTS
The company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" during the second quarter of 1998. This standard prescribes
the methods of calculating basic and diluted earnings per share and requires
dual presentation of these amounts on the face of the income statement. As the
calculation of basic and diluted earnings per share resulted in the same amount,
only one earnings per share amount has been reported for all periods presented.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" were
issued. SFAS No. 130 establishes standards for the reporting of comprehensive
income and its components in a financial statement presentation. SFAS No. 130
separates comprehensive income into net income and other comprehensive income,
but does not change the measurement and presentation of net income. Other
comprehensive income includes certain changes in the equity of the Company which
are currently recognized and presented separately in the Consolidated Statements
of Stockholders' Equity, such as the change in the Cumulative Translation
Adjustment account. The Company will adopt SFAS No. 130 in the fourth quarter of
fiscal 1999.
SFAS No. 131 establishes new standards for the way companies report information
about operating segments and requires that those enterprises report selected
information about operating segments in the financial reports issued to
shareholders. The Company will adopt SFAS No. 131 in the fourth quarter of
fiscal 1999.
5. ACQUISITION
On April 20, 1998, the Company completed the purchase of the Fuller's Earth
absorbent business of American Colloid Co., a wholly owned subsidiary of Amcol
International, for $14,657,000 including transaction expenses. The purchase
includes a production plant and mineral reserves in Mounds, Illinois (Oil-Dri
<PAGE> 8
Mounds Production Company), and mineral reserves located in Paris, Tennessee,
and Silver Springs, Nevada. The business has annual sales approximating
$15,000,000. The Company financed the acquisition through a fixed-rate private
debt placement. The acquisition was accounted for as a purchase, with the excess
purchase price over fair market value of the underlying assets allocated to
intangibles, including supply contracts and non-compete covenants. These
intangibles are being amortized over 15 years.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1997
- -----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Consolidated net sales for the three months ended October 31, 1998 were
$43,670,000, an increase of $3,921,000 or 9.9%, over net sales of $39,749,000 in
the first quarter of fiscal 1998. Excluding the $1,926,000 of fiscal 1998 first
quarter sales of the transportation business, which was divested last year,
sales increased 15.5% in the first quarter of fiscal 1999 versus fiscal 1998.
Net income for the three months ended October 31, 1998 was $2,028,000 or $0.34
per share, an increase of 8.3% from $1,872,000, or $0.30 per share, earned in
last year's quarter.
Net sales of pet products increased $3,175,000 or 13.3% from prior year amounts,
primarily due to incremental sales from Oil-Dri Mounds Production Company,
partially offset by the loss of sales to Sam's Club, which decided to
discontinue carrying the Company's cat litter products. Net sales of
agricultural and fluids purification products increased $1,686,000, or 18.6%
from the comparable period in fiscal 1998. The higher sales resulted from
increased demand for AGSORB(R) products and the family of animal health and
nutrition products, as well as increased demand for PURE-FLO(R) products in the
United Kingdom. Net sales of industrial and environmental sorbents increased
$1,064,000 or 21.9% from last year's first quarter, also due in part to last
year's acquisition of Oil-Dri Mounds Production Company.
Consolidated gross profit as a percentage of net sales for the three months
ended October 31, 1998 increased to 32.3% from 29.9% in the comparable period of
fiscal 1998. Changes in sales mix, a Company-wide effort to reduce costs and
exiting the transportation business contributed to this increase.
Operating expenses as a percentage of net sales increased to 24.2% in the first
quarter of fiscal 1999 from 22.2% in the same quarter of the prior year due
primarily to advertising expenses related to the introduction of paper cat
litter products.
Interest expense increased $353,000 due to the fixed-rate financing secured
during the third quarter of fiscal 1998, which was used to fund the purchase of
Oil-Dri Mounds Production Company, while interest income increased $32,000.
The Company's effective tax rate was 28.5% of pre-tax income in the first
quarter of fiscal 1999 versus 28.0% in fiscal 1998.
<PAGE> 9
The assets of the Company decreased $923,000 or 0.7% during the first quarter of
fiscal 1999. Current assets decreased $102,000 or 0.2% from fiscal 1998 year end
balances primarily due to decreased cash and cash equivalents, partially offset
by higher accounts receivable. Property, plant and equipment, net of accumulated
depreciation, decreased $765,000 or 1.2% during the first quarter due to
depreciation expense exceeding capital expenditures.
Total liabilities in the quarter ended October 31, 1998 decreased $1,736,000 or
2.8% primarily due to lower advertising related accruals. Current liabilities
decreased $1,858,000 or 10.7% from July 31, 1998 balances, also due to lower
advertising related accruals.
EXPECTATIONS
- ------------
The Company anticipates sales during the remainder of fiscal 1999 will be higher
than sales in the comparable period of fiscal 1998. Sales of branded cat box
absorbents are expected to increase moderately as existing products and new
product introductions gain incremental distribution. Sales of private label cat
box absorbents, agricultural carriers, and industrial sorbents in the rest of
fiscal 1999 are also expected to be at higher levels than the comparable period
of fiscal 1998 due to incremental sales resulting from the April 20, 1998
acquisition of Oil-Dri Mounds Production Company. However, sales growth of cat
box absorbents is subject to continuing competition for shelf space in the
grocery, mass merchandiser and club markets. Sales of the Company's fluids
purification products are also expected to increase moderately throughout the
remainder of the fiscal year.
The foregoing statements under this heading are "forward-looking statements"
within the meaning of that term in the Securities Exchange Act of 1934, as
amended. Actual results may be lower than those reflected in these
forward-looking statements, due primarily to: continued vigorous competition in
the grocery, mass merchandiser and club markets; the level of success of new
products; and the cost of new product introductions and promotions in consumer
markets. These forward-looking statements also involve the risk of changes in
market conditions in the overall economy and, for the agricultural and fluids
purification division, in the planting activity, crop quality and overall
agricultural demand, including export demand.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The current ratio increased to 3.5 at October 31, 1998 from 3.1 at July 31,
1998. Working capital increased $1,756,000 during the three months ended October
31, 1998 to $38,039,000. Cash provided by operations continues to be the
Company's primary source of funds to finance investing needs and financing
activities. During the three months ended October 31, 1998 the balances of cash,
cash equivalents and other investments decreased $2,512,000 primarily due to
capital expenditures ($1,269,000), purchases of the Company's common stock
($758,000), and payment of dividends ($444,000). Total cash and investment
balances held by the Company's foreign subsidiaries at October 31, 1998 and July
31, 1998 were $3,261,000 and $3,350,000 respectively.
FOREIGN OPERATIONS
- ------------------
Net sales by the Company's foreign subsidiaries for the three months ended
October 31, 1998 were $4,056,000, or 9.3% of total Company sales. This
represents an increase of $992,000 or 32.4% from the same period of fiscal
<PAGE> 10
1998, in which foreign subsidiary sales were $3,064,000, or 7.7% of total
Company sales. This increase is due primarily to an increased demand for
PURE-FLO(R) products in the United Kingdom, as discussed above. Net income of
the foreign subsidiaries for the first three months of fiscal 1999 was $207,000
compared with $186,000 in the same period of fiscal 1998. Identifiable assets of
the Company's foreign subsidiaries as of October 31, 1998, were $11,528,000, an
increase of $996,000 from $10,532,000 as of October 31, 1998. The increase is
primarily due to higher fixed assets and cash and cash equivalents.
YEAR 2000
- ---------
The Year 2000 (Y2K) issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
will be unable to interpret dates beyond 1999, which could cause a system
failure or application errors, leading to disruptions in operations. The Company
has completed an internal review of all systems to determine major areas of
exposure to Y2K issues, and most of these issues have been resolved. In
addition, third parties with whom there are systems interaction are being
surveyed to assess Y2K compliance, or if contingency plans will become
necessary. The cost of Y2K issue resolution will not have a material adverse
impact on the Company's financial statements, and it is anticipated that the
Company's computer systems will be Y2K-compliant by July 31, 1999.
<PAGE> 11
6. (a) EXHIBITS: The following documents are an exhibit to this report.
<TABLE>
<CAPTION>
Exhibit
Index
<S> <C> <C>
Exhibit 11: Statement Re: Computation of per share earnings 13
Exhibit 27: Financial Data Schedule 14
</TABLE>
(b) During the quarter for which this report is filed, no reports on Form
8-K were filed.
<PAGE> 12
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIL-DRI CORPORATION OF AMERICA
(Registrant)
BY /S/MICHAEL L. GOLDBERG
-----------------------------
Michael L. Goldberg
Executive Vice President, Chief Financial Officer and Corporate Secretary
BY /S/DANIEL S. JAFFEE
-----------------------------
Daniel S. Jaffee
President and Chief Executive Officer
Dated: December 15, 1998
<PAGE> 13
Exhibit 11
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------
Three Months Ended
October 31
------------------------
1998 1997
------------------------
<S> <C> <C>
Net income available to Stockholders
(numerator) $2,028 $1,872
------ ------
Shares Calculation (denominator):
Average shares outstanding - basic 5,881 6,274
Effect of Dilutive Securities:
Potential Common Stock
relating to stock options 48 53
------ ------
Average shares outstanding- assuming dilution 5,929 6,327
====== ======
Earnings per share-basic $ 0.34 $ 0.30
====== ======
Earnings per share-assuming dilution $ 0.34 $ 0.30
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 6,878
<SECURITIES> 1,193
<RECEIVABLES> 26,728
<ALLOWANCES> (396)
<INVENTORY> 13,062
<CURRENT-ASSETS> 53,507
<PP&E> 127,592
<DEPRECIATION> 65,472
<TOTAL-ASSETS> 133,292
<CURRENT-LIABILITIES> 15,468
<BONDS> 39,976
0
0
<COMMON> 724
<OTHER-SE> 71,897
<TOTAL-LIABILITY-AND-EQUITY> 133,292
<SALES> 43,670
<TOTAL-REVENUES> 43,670
<CGS> 29,585
<TOTAL-COSTS> 29,585
<OTHER-EXPENSES> 10,413
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 792
<INCOME-PRETAX> 2,836
<INCOME-TAX> 808
<INCOME-CONTINUING> 2,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,028
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
